According to Figure 4.2, capital gains, which are “…
an increase in the value of a capital asset (investment or real estate) that
gives it a higher worth than the purchase
price”, is the primary purpose for household investing.

Thus, capital gains closely followed by lifestyle
improvement are the key motivations for investing while liquidity needs and home buying also play crucial
roles.

Additionally, since there are almost no investment
opportunities (as opposed to savings schemes) that allow for tax savings, this
factors significantly lower in the list.

With just 3% of Indians paying income taxes, the
indifference towards tax savings schemes may also be a consequence of the
insignificant tax net.

While investment rationale, that is, “Why do I invest?”
is a crucial element of the survey, key drivers of broader financial savings
(in both investment and other financial instruments), that is, “What Drives Me
to Save?” is also an important question that needs to be explored. Figure 4.3
shows the distribution of savings amongst households by income levels.

The economic reasoning behind the linear income-savings
hypothesis is logical and derives directly from basic development economics.
Since all additional income is expended to supplement basic needs, lower income
groups have a higher marginal propensity to consume.

Figure 4.3 backs this claim as the data shows that 85%
of those in the < Rs. 20,000 income range have savings less than 40% of
annual income.

Once the threshold of basic needs is crossed, households
start saving for future contingencies or for investment returns. The SIS data
supports this hypothesis; in urban India, the limit is above or around the Rs.
20,000 per month level. The data also reveals that middle-class households in
the Rs. 20,000 to Rs. 50,000 range, followed closely by the Rs. 50,000 to Rs. 1
lakh income group, have a higher marginal propensity to save.

Unexpectedly, the figures disclose that 80% of households
with monthly income greater than 1 lakh also have savings less than 40 percent
of annual income.

While this seems to go against the linear income-savings
hypothesis, it is crucial to keep in mind that this high- income segment may
have social safety nets (like insurance, family support, etc.) that allow them
to have a lower “precautionary demand for savings”.

Additionally, with just 3% of Indians paying income
taxes, the top tier of the high-income group are arguably less keen to disclose
their incomes and savings.

According to Figure 4.2, capital gains, which are “… an
increase in the value of a capital asset (investment or real estate) that gives
it a higher worth than the purchase price”, is the primary purpose for
household investing.

Thus, capital gains closely followed by lifestyle
improvement are the key motivations for investing while liquidity needs and
home buying also play crucial roles.

Additionally, since there are almost no investment
opportunities (as opposed to savings schemes) that allow for tax savings, this
factors significantly lower in the list. With just 3% of Indians paying income
taxes, the indifference towards tax savings schemes may also be a consequence
of the insignificant tax net.

While investment rationale, that is, “Why do I invest?”
is a crucial element of the survey, key drivers of broader financial savings
(in both investment and other financial instruments), that is, “What Drives Me
to Save?” is also an important question that needs to be explored.

Figure 4.3 shows the distribution of savings amongst
households by income levels. The economic reasoning behind the linear
income-savings hypothesis is logical and derives directly from basic
development economics. Since all additional income is expended to supplement
basic needs, lower income groups have a higher marginalpropensity to consume.

Figure 4.3 backs this claim as the data shows that 85% of
those in the < Rs. 20,000 income range have savings less than 40% of annual
income.

Once the threshold of basic needs is crossed, households
start saving for future contingencies or for investment returns. The SIS data
supports this hypothesis; in urban India, the limit is above or around the Rs.
20,000 per month level. The data also reveals that middle-class households in
the Rs. 20,000 to Rs. 50,000 range, followed closely by the Rs. 50,000 to Rs. 1 lakh income group, have a
higher marginal propensity to save.

Unexpectedly, the figures disclose that 80% of households
with monthly income greater than Rs. 1 lakh also have savings less than 40% of
annual income.

While this seems to go against the linear income-savings
hypothesis, it is crucial to keep in mind that this high- income segment may
have social safety nets (like insurance, family support, etc.) that allow them
to have a lower “precautionary demand for savings”.

Additionally, with just 3% of Indians paying income
taxes, the top tier of the high-income group are arguably less keen to disclose
their incomes and savings.